How 401(k)s Rewarded the Rich and Turned the Rest of Us into Big Losers

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This article first appeared in AlterNet.

It was a bad idea from the get-go but new research shows that America’s 401(k) revolution has left us even worse off than we thought. Here’s a look at how we got into this mess and where it will take us if we don’t wise up.

The Dumbest Retirement Policy in the World

Thirty years ago, as laissez-faire fanaticism took hold of America, misguided policymakers decided that do-it-yourself retirement plans, otherwise known as 401(k)s, would magically secure our financial future in the face of gyrating markets, economic crises, unpredictable life events, stagnant wages and rampant job insecurity. It was an extraordinary shift in thinking about public policy: Instead of having predictable streams of income from traditional pensions, ordinary people with little financial expertise would suddenly transform themselves into financial gurus, putting money aside and managing complicated investments in tax-deferred accounts.

There were red flags along the way for our 401(k)s. They were originally supposed to supplement pensions but clever corporate cost-cutters decided that voluntary individual accounts would replace them. Big difference! Meanwhile, throughout the 1990s, the national savings rate fell. Real wages dropped. As Helaine Olen details in her book Pound Foolish, Americans started borrowing against retirement plans to pay the mortgage or send the kids to college. The media was basically out to lunch and politicians went on claiming the nonsense that individual retirement accounts would encourage savings and turn us all into professional money managers. The stock market would bring us double-digit returns. Whoopie!

Reality check: In 2007, the financial crisis destroyed America’s retirement fantasy. Jobs evaporated or were downsized. The stock market took a nosedive. Millions of Americans who had worked hard, straining to sock away a portion of their salary for 401(k)s, watched helplessly as a black cloud formed over their golden years. In October 2008, the Congressional Budget Office revealed that Americans had lost $2 trillion in just 15 months — money that will likely never be recovered. Not long after, President Obama betrayed the public by turning away from the jobs crisis to create a deficit commission whose leaders had the stunning lack of foresight to advise cutting Social Security at a time when the retirement train wreck was quickly picking up steam.

Today, the balance in our retirement accounts falls wildly short of what we need to keep us from destitution in old age, much less to secure a comfortable existence. According to the Vanguard Group, in 2012, the average account balance in our 401(k)s was $86,212 — and that number is skewed by high earners at the top. The amount experts say we need?  About $1 million or more, depending on how much you make now.

America, Land of Inequality

The long-term effects of an experiment gone awry are starting to become clear. The Economic Policy Institute has just released a study proving that do-it-yourself retirement is driving economic inequality, leaving regular Americans further behind than ever. Not since the Gilded Age has there been such a gulf between the rich and the rest. EPI’s Retirement Inequality Chartbook offers dozens of charts that examine retirement preparedness and outcomes by income, race and ethnicity, education, gender and marital status.

The report reveals that median retirement savings today stand at a paltry $44,000. But if you start looking at affluent America, the picture changes dramatically. A household at the 90 percentile of the retirement savings distribution had nearly 100 times more socked away for retirement than the median household. And the top 1 percent? Households at that lofty level had stashed more than $1.3 million in retirement account savings.

In a nutshell, the 401(k) revolution created a few big winners and turned most of us into losers.

According to researchers Monique Morrissey and Natalie Sabadis, this went down because higher income workers are much more likely to participate in 401(k)s than ordinary workers who are struggling just to pay the bills. They also have more disposable income, higher tolerance for investment risk, larger tax breaks and they are more likely to work for employers that provide generous matches. Even if we all participated in do-it-yourself retirement plans at the same rate, growing inequality would still be the result.

The EPI study finds that 401(k) plans have also made regular people more vulnerable to shocks in the stock and housing markets and other economic trends. And if you’re young, a minority, female or single, you’ve got extra worries. Middle-aged and older households have increased their retirement savings in recent years, but younger Americans have not. White workers are slightly better off when it comes to retirement savings in 2010 than they were two decades earlier, while black or Hispanic workers are worse off. Unmarried people, particularly women, are also falling short on savings.

Looking Ahead

As we approach another round of debt-ceiling drama this fall, Republicans like Eric Cantor of Virginia are howling for cuts to Social Security and Medicare at a time when most Americans are increasingly strapped in their post-work years. That’s not surprising. But unfortunately, many Democrats, including President Obama, have signaled their willingness to further rob Americans of their hard-earned retirement insurance by cutting plans through various schemes like changing the way cost-of-living adjustments are calculated and means-testing, which Nobel Prize-winning economist Joseph Stiglitz and others point out is no more than a covert strategy to undermine such programs.

Cutting Social Security and Medicare will only further strain American retirements and add fuel to the fire of economic inequality. This is bad for everyone. We know that inequality is divisive and corrosive to society. A whole swath of social problems get worse in societies with bigger income differences between rich and poor: all kinds of diseases and mental illness, violence, low math and literacy scores among youth, drug abuse, lower social mobility and more people behind bars. Trust dissolves and social relationships unravel as stress and anxiety increase. The economy falters.

As Kate Pickett and Richard Wilkinson write in their book, The Spirit Level: Why Greater Equality Makes Societies Stronger, it’s not just lack of money and material resources that weaken a country, it’s the gap between rich and poor itself that makes things fall apart. This explains all kinds of incongruent phenomena, like why babies born in the US, a wealthy country that spends more on healthcare than any other, are more likely to die and have a shorter life expectancy than those born in Greece, a much poorer nation. And why murder rates, the number of teenage births and obesity rates are higher in unequal societies, despite their relative wealth.

Seniors in the US still appear to be relatively well off, but that’s because the impact of the 401(k) revolution is just beginning to hit retirees. Pensions are disappearing fast, and many people don’t realize that Social Security benefits were already cut in 1983, leaving those born after 1960 with significantly reduced payments. The horror is coming as baby boomers face retirement without adequate sources of income.

The shiver is already felt in my age group, Generation X. It’s going to be bad not just for the aged: A country full of impoverished elderly people is bad for everyone. Young people will have reduced productivity as they are forced to take time off from work to care for aging parents. Disability rolls increase as the retirement age goes up. Weakened demand for goods and services due to empty pockets stalls the economy.

A train wreck is on the way, and the only way to avoid it is to come up with policy changes that are much bolder than anything coming out of Washington. Economist Theresa Ghilarducci, for one, has proposed a plan to phase out 401(k)s and create a new government-run savings plan that would supplement Social Security (Ghilarducci explains her plan here). The plan would be universal and mandatory and would provide a guaranteed real 3 percent annual rate of return adjusted for inflation. That’s the kind of proposal we need to be considering.

It’s time to say good-bye to the failed 401(k). And don’t let the door hit you on the way out.

Lynn Parramore is an AlterNet senior editor. She is co-founder of Recessionwire, founding editor of New Deal 2.0 and author of Reading the Sphinx: Ancient Egypt in Nineteenth-Century Literary Culture. She received her Ph.D in English and Cultural Theory from NYU, where she has taught essay writing and semiotics. She is the Director of AlterNet’s New Economic Dialogue Project. Follow her on Twitter @LynnParramore.
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  • EllenHunt

    401-K’s were a response to a change in employment more than a change in pensions. My father had 1 major employer in his lifetime, and that company, GM, is still going. I have had 10 major employers. Only three of those companies are still in existence, and all of them have been acquired. I am pretty common that way.

    So the real problem is that there is no vehicle at all that is suitable for regular people’s retirement.

  • Jeremy Fretts

    Investing in stocks (directly or indirectly) has also led us to a place where citizens will champion actions and policies which are good for short term returns but bad for the long term of the company or its employees. What is good for stockholders is often bad for employees – even if they ARE the stockholders!

  • Kristopher Heinekamp

    I don’t think that’s entirely accurate.
    Pensions are managed accounts, and so, even if the company goes under, the pensions are being managed by the same company. If the company managing the pensions goes under, then another company will do that. I can’t imagine non-finance institutions would be managing their own pensions funds…

  • Judith Lund

    IRA’s were another really bad idea. The program was sold with the idea that people would pay less tax on these funds when they were retired. Then the allowed contributions were held so low that even if the markets had responded as expected there would have been insufficient funds for retirement. Never factored in to any of the “retirement” equations was the fact that these funds made the social security taxable.

  • oldngrumpy1

    The one thing about retirement money in the market that is never mentioned is the dilution of ownership of major corporations, especially in the financial sector. This has resulted in the total lack of concerned oversight that allowed “managers” to make many decisions previously reserved for share holders, such as their own compensation. With CEOs populating most boards to rubber stamp each other’s compensation packages, granting huge parachutes and disregarding performance, they have managed to garner much of the profit made from their gambling as salary, and they have structured in such a way that their tax liability is minimal. I’m not saying that the 401k was solely responsible for the corruption of the American corporation, but it was surely a tool in that.

  • Gerard Pierce

    A guaranteed 3% rate of return is a bad joke, even if you are living in an economy with 0% inflation. The rule of 72 indicates that at 3% it would take 24 years for your investment to double in value.

    If you “save” i/5 of your salary, at the end of 24 years Your investment would have grown to 40% of a years income. (not an exact calculation, but close enough for government work). Lot’s of luck in your retirement.

  • Anonymous

    I am lucky my primary employer – the final 20 years has a defined benefit pension and their 401k allowed for 16% from me and they matched half up to 8% for a total of 20% of the gross. My husband & I both had pre tax iras from previous employers that were self directed. We bought a modest home to ensure we could max the 401Ks – we were both with the same firm. It worked well for us.

    What I find depressing is that so many firms do not see retirees as consumers of their products & services. Rather they use unethical if not illegal practices to cheat or try to cheat their own employees (but not the executive class of course) of the means to be effective consumers for very short term gains. Short sighted indeed and I look forward to changes in laws so that share holders have absolute control over executive employment compensation. Further, I hope to see shareholders with power over other decisions.

    By the by – look at Matt Taibbi’s informative article on the scams being run by hedge fund mgrs & politicians with ALEC behind them working to destroy publuc pensions while enriching the hedge funds & politicians while screwing ordinary staff. They really believe that the economy is a zero sum game. If less affluent people gain financial resources somehow it takes away from those at the top.

    Were it not so destructive to our society it would be merely pathetic and sad.

  • Anonymous

    So what magic source of money do you think would have funded a pension? Your employer would have to pay you less if they were putting resources into pension funds. And you would be dependent on the pension fund managers not doing something to break the pension. I understand that it would have been very hard to save much on a 40K NYC salary, but having a pension instead of a 401K plan is not a magic solution to compensate for a low salary.

  • Anonymous

    Your math is confusing. If in 1990, you earned 30K, and you put 1/5 or 6K into savings at 3%, then 24 years later in 2014 that 1990’s savings would have grown into 12K. Then you would save more in 1991, 1992, etc.

    But I guess your point is that you would be in retirement 24 years later, and each year you would spend the result of the year 24 years earlier. But the math is different if you are going to retire 48 years later (start saving at 24 and retire at 72). Then with the 3%, the income replacement would double twice, so instead of 40% income at 24 years, you would have 80% replacement income at 48 years. Which would fully match your earlier income because you would no longer be saving the 1/5th.

    But I don’t think anyone would be putting 1/5 of their income into a 3% investment. A person should put some part into higher return stocks, real estate, etc. , diversified. But the problem is that many people get bad results from a 401K as a consequence of high fees, poor investment choices, bad advice. Most people aren’t well prepared to manage their 401K and other investments.

  • Anonymous

    these pundits never tell the whole story, the real problem is that CAPITALISM is working EXACTLY the way it was designed, the middle class whites who thought capitalism was cool because they were getting big crumbs at the expense of everyone else are now being ground as grist in the mill and they are crying to the havens, and blaming all the lower classes, immigrants, blacks instead of their great white fathers who started this capitalist system

  • Anonymous

    who in the hell has that much excess money???

  • Anonymous

    what is your salary 28 K or maybe 35K

  • Anonymous

    In the 90’s while Clinton was president, the D-J went from about 3000 to about 10,000 and my IRA tripled in value within six years. In the past 14 years, It has remained flat, barely eking out 2% return.

  • Anonymous

    ” In October 2008, the Congressional Budget Office revealed that Americans had lost $2 trillion in just 15 months — money that will likely never be recovered. ”

    Of course it won’t be recovered; it’s in the hands of the thieving 1%, as they intended all along.

  • DBrashier

    It’s more than just the losses for the 401Ks. You lose your job, you fall back on taking that money out, and you do it at the worst possible time – when the value is already halved or more – and then the government hits you with a whopping big penalty for taking it out early so it’s worth even less.

    But you have to eat…

  • Anonymous

    Let one Mafia guy loot a union pension fund and he goes up the river. Let a company do it and they all get bonuses. That tells the story.

  • Anonymous

    That’s actually incorrect. If you did nothing, leaving your money in the 401K, it would be fully recovered.

    The big mistake were people who panicked and pulled their money out when the market dropped.

  • Anonymous

    “The big mistake were people who panicked and pulled their money out when the market dropped.”

    No, the “big mistake” was in allowing banks to get “too big to fail”, then allowing them to engage in blatant fraud (the “mortgage crisis”) without civil or criminal consequences. The whole process was designed to part fools from their money, whether the “fools” are irresponsible or incompetent fund managers, or individuals with their limited control over their 401k’s.

    When 1% controls 40% of the wealth, there is something seriously wrong with the distribution.

  • Anonymous

    The reason for the tremendous gap between working people’s retirement savings and that of the wealthy ownership class is that the working people must solely depend on savings from their wages to invest in retirement plans, while the rich enjoy much higher-paid earnings from jobs and ownership of wealth-creating, income-generating productive capital assets to draw upon for retirement plan investment.

    As machines and other non-human instruments of production continue to replace human labor at an exponential rate the result is that productivity gains will continue to lead to more wealth for the OWNERS of the non-human factor of production, but for others who have always been dependent on jobs as their source of income, there jobs-sourced incomes will continue to steadily decline to poverty-levels and prevent them investing in a “past savings-based” retirement system.

    What is needed is a “future earnings” (savings)-based retirement system such as that provided for in The Capital Homestead Act in the form of “super-IRA” Capital Homestead Accounts (CHA).

    What must be understood (which unfortunately is not understood by conventional economists) is that there are two independent factors of production––human or labor workers and non-human or physical productive capital––productive land, structures, machines, super-automation, robotics, digital computerized operations, etc.

    Fundamentally, economic value is created through human and non-human contributions.

    Also what needs to be understood is that human productivity has not advanced (our human abilities are limited by physical strength and brain power––and relatively constant), but that the productiveness of the non-human factor of production––productive capital––is the reason that private sector corporations, majority owned by the “1 percent,” are utilizing the non-human factor of production increasingly to create efficiencies and save labor costs. It is the function of technology to save labor from toil and to enable us to do things that otherwise is humanly impossible without non-human input. The critical question becomes who should own productive capital? The issue of OWNERSHIP is unbelievably overlooked by those in academia and politics, as well as by the authors of the MIT Technology Review article. Yet we live in country founded upon private property rights.

    Today, large streams of data, coupled with statistical analysis and sophisticated algorithms, are rapidly gaining importance in almost every field of science, politics, journalism, and much more. What does this mean for the future of work?

    But what about China, the place where all the manufacturing jobs are supposedly going? True, China has added manufacturing jobs over the past 15 years. But now it is beginning its shift to super-robotic automation. Foxconn, which manufactures the iPhone and many other consumer electronics and is China’s largest private employer, has plans to install over a million manufacturing robots within three years. Thus, in reality off-shoring of manufacturing will eventually be replaced by human-intelligent super-robotic automation.

    The pursuit for lower and lower cost production that relies on slave wage labor will eventually run out of places to chase. Eventually, “rich” countries, whose productive capital capability is owned by its citizens, will be forced to “re-shore” manufacturing capacity, and result in ever-cheaper robotic manufacturing.

    “The era we’re in is one in which the scope of tasks that can be automated is increasing rapidly, and in areas where we used to think those were our best skills, things that require thinking,” says David Autor, a labor economist at Massachusetts Institute of Technology.

    Businesses are spending more on technology now because they spent so little during the recession. Yet total capital expenditures are still barely running ahead of replacement costs. “Most of the investment we’re seeing is simply replacing worn-out stuff,” says economist Paul Ashworth of Capital Economics.

    Yet, while the problem is one that no one can no longer ignore, the solution also is one starring them in the face but they just can’t see the simplicity of it.

    The fundamental challenge to be solved is how do we reinvent and redesign our economic institutions to keep pace with job destroying and devaluing technological innovation and invention so not all of the benefits of owning FUTURE productive capacity accrues to today’s wealthy 1 percent ownership class, and ownership is broadened so that EVERY American earns income through stock ownership dividends so they can afford to purchase the products and services produced by the economy.

    None of this is new from a macro-economic viewpoint as productive capital is increasingly the source of the world’s economic growth. The role of physical productive capital is to do ever more of the work of producing more products and services, which produces income to its owners. Full employment is not an objective of businesses. Companies strive to keep labor input and other costs at a minimum. Private sector job creation in numbers that match the pool of people willing and able to work is constantly being eroded by physical productive capital’s ever increasing role. Over the past century there has been an ever-accelerating shift to productive capital––which reflects tectonic shifts in the technologies of production. The mixture of labor worker input and capital worker input has been rapidly changing at an exponential rate of increase for over 235 years in step with the Industrial Revolution (starting in 1776) and had even been changing long before that with man’s discovery of the first tools, but at a much slower rate. Up until the close of the nineteenth century, the United States remained a working democracy, with the production of products and services dependent on labor worker input. When the American Industrial Revolution began and subsequent technological advance amplified the productive power of non-human capital, plutocratic finance channeled its ownership into fewer and fewer hands, as we continue to witness today with government by the wealthy evidenced at all levels.

    People invented tools to reduce toil, enable otherwise impossible production, create new highly automated industries, and significantly change the way in which products and services are produced from labor intensive to capital intensive––the core function of technological invention. Binary economist Louis Kelso attributed most changes in the productive capacity of the world since the beginning of the Industrial Revolution to technological improvements in our capital assets, and a relatively diminishing proportion to human labor. Capital, in Kelso’s terms, does not “enhance” labor productivity (labor’s ability to produce economic goods). In fact, the opposite is true. It makes many forms of labor unnecessary. Because of this undeniable fact, Kelso asserted that, “free-market forces no longer establish the ‘value’ of labor. Instead, the price of labor is artificially elevated by government through minimum wage legislation, overtime laws, and collective bargaining legislation or by government employment and government subsidization of private employment solely to increase consumer income.”

    Furthermore, according to Kelso, productive capital is increasingly the source of the world’s economic growth and, therefore, should become the source of added property ownership incomes for all. Kelso postulated that if both labor and capital are interdependent factors of production, and if capital’s proportionate contributions are increasing relative to that of labor, then equality of opportunity and economic justice demands that the right to property (and access to the means of acquiring and possessing property) must in justice be extended to all. Yet, sadly, the American people and its leaders still pretend to believe that labor is becoming more productive.

    A National Right To Capital Ownership Bill that restores the American dream should be advocated by the progressive movement, which addresses the reality of Americans facing job opportunity deterioration and devaluation due to tectonic shifts in the technologies of production.

    There is a solution, which will result in double-digit economic growth and simultaneously broaden private, individual ownership so that EVERY American’s income significantly grows, providing the means to support themselves and their families with an affluent lifestyle. The Just Third Way Master Plan for America’s future is published at

    The solution is obvious but our leaders, academia, conventional economist and the media are oblivious to the necessity to broaden ownership in the new capital formation of the future simultaneously with the growth of the economy, which then becomes self-propelled as increasingly more Americans accumulate ownership shares and earn a new source of dividend income derived from their capital ownership in the “machines” that are replacing them or devaluing their labor value.

    The solution will require the reform of the Federal Reserve Bank to create new owners of future productive capital investment in businesses simultaneously with the growth of the economy. The solution to broadening private, individual ownership of America’s future capital wealth requires that the Federal Reserve stop monetizing unproductive debt, including bailouts of banks “too big to fail” and Wall Street derivatives speculators, and begin creating an asset-backed currency that could enable every man, woman and child to establish a Capital Homestead Account or “CHA” (a super-IRA or asset tax-shelter for citizens) at their local bank to acquire a growing dividend-bearing stock portfolio to supplement their incomes from work and all other sources of income. Policies need to insert American citizens into the low or no-interest investment money loop to enable non- and undercapitalized Americans, including the working class and poor, to build wealth and become “customers with money.” The proposed Capital Homestead Act would produce this result.

    Support the Capital Homestead Act at and

    See the article “The Absent Conversation: Who Should Own America?” published by The Huffington Post at and by OpEd News at–by-Gary-Reber-130429-498.html

    Also see “The Path To Eradicating Poverty In America” at and “The Path To Sustainable Economic Growth” at And also “Second Income Plan” at

    Also see the article entitled “The Solution To America’s Economic Decline” at and “Education Is Critical To Our Future Societal Development” at And also “Achieving The Green Economy” at Also see it complete with the footnotes at

    Also see “Financing Economic Growth With ‘FUTURE SAVINGS': Solutions To Protect America From Economic Decline” at and “The Income Solution To Slow Private Sector Job Growth” at

  • Marcia MacInnis

    Thought-provoking article, thank you. As a former employee benefits director, I am grateful for this perspective that challenges conventional wisdom about retirement plans.

    Lynn Parramore is a fine writer and a clear thinker. She doesn’t need a photo that looks like it comes out of an online dating service to encourage people to read her editorials. How about affording a little more dignity to someone who has earned the post of senior editor with your organization?

    Thank you.

  • Anonymous

    As an early leader in Southern Poverty movement Bill Moyers is disappointing as he works just as hard as corporate media to make it seem as though the citizens of America have no way to secure justice from the losses of the massive corporate frauds that brought the economy down in 2008. Why would you think that tens of trillions of dollars stolen by Wall Street would not come back to people and government coffers? Suspending Rule of Law as is happened under the Obama Admin means a suspension of Statutes of Limitation. We can and will get that money back for all retirement, home, and benefit loses. Remember, Obama was elected to wage a War on Fraud that would have hired millions of unemployed and rebuilt white collar criminal agencies across the country and paid for itself by recovering trillions in fraud. No taxpayer money or republicans needed. So, this is what our next candidate should be shouting. WE WANT TO ELECT A DEMOCRAT THIS TIME AND NOT A NEO-LIBERAL WHO CAN SEE NO FRAUD!

  • Jennaeb

    That’s not true, even if you stayed in your account. Once lost, you now have fewer dollars invested. Those may “bounce” back at a handsome rate and you’ll still never catch back up – you had fewer dollars invested to benefit from the bounce. Both of my retirement accounts reflect this reality – they are still below their 2007 levels If they had fully recovered, they would be well over their 2007 value for all the growth that should have happened in 2011 and 2012!

  • Dale

    There are a number of ways to prepare for retirement, and the 401K is but one of them. Pensions were phased out for a number of reasons, not the least of which is the dynamic nature of corporations and their ability to stay competitive while honoring them. Economic inequality and its implications are the real topic, and it is very complex, to say the least. The 401K is what it is, a way to save for retirement. Not THE way, but A way. To loop around and reach a conclusion that we need to trash the 401K plan is a rather weak conclusion to a very complex topic.

  • Dissenter

    The idea that anyone shouldn’t be saving some of their income is ludicrous, as is the idea that one should be able to live comfortably off Social Security alone. Pensions disappeared once both employer and employee decided that employment wasn’t a long term commitment. SS was meant to be a social safety net for people who outlived mean life expectancy, not a government retirement plan. So, this article is bogus- first, by not being honest about the original intent of both Social Security and 401(k)s and two, by conflating the overlapping issues.

  • Zoyd

    +1 to John Bogle (and his bogleheads!)

  • Anonymous

    If you want to have retirement money, you have to force yourself to save. Maybe aim for saving 16%. So if you are making 30K a year, save 5K and live like you were making 25K. Think of how the people making 25K live if they are not saving any. Get some advice you trust on how to invest your savings, nothing fancy, just pick low expense index funds and don’t react too much to short term crashes (i.e. don’t sell low and buy high).

  • Anonymous

    you do realize that the cost of basic living for working class/ low income folks eats up all of the income.
    the low income folks get by fairly often with illegal and quasi illegal underground economys.
    workers are getting the equivalent of 1980 salary , while all of the excess wealth generated has gone to the top10% (who were already doing very well and did not need it!!!) this is how capitalism works!!!

  • Ronald

    At the 90th percentile, Bob, that is exactly what it means. In other words, the top 10%. The top 1% don’t NEED the 401Ks, so they don’t get any.

  • Anonymous

    Did you even read the article? Or just not comprehend it?

  • Anonymous

    Same here. I hit 45 and suddenly my stellar performance reviews were riddled with issues. Finally got the ax in a round of layoffs though I worked 60-80 hour weeks and holidays.

  • Anonymous

    I think they would not have been so disastrous if the job market hadn’t become so volatile at the same time. I am old enough and young enough to have gotten the message to start saving in my twenties (“compound interest”!) A significant number of us found that we were much worse off for having savings locked up like that and subject to penalties when the need came to use that savings during periods of unemployment or underemployment.

  • Anonymous

    Sorry. You are out of touch with reality. $30k per year barely puts food on the table for a family let alone health care, college, transportation. Even saving $5k per year falls far short of $1 million needed to retire. Your approach was the sell job used to push through 401ks. Just “save” and you can retire!

  • Anonymous

    Are many people irresponsible with debt? Yes. But a huge amount of even *credit card* debt is actually medical bills (now the doctor takes credit so he doesn’t have to float these payments) and school payments (either because the student loan doesn’t actually cover the school costs or because the student loan payment leaves people buying their food on credit). People are using credit to make up for stagnant wages.

  • Anonymous

    There are people who survive on a 25K income. If a person with a 30K income wants to have some retirement savings, then they have to live like a person with 25K who is not saving, in my example. That means choices like living in a cheaper housing, delaying having any children, using the cheapest transportation possible. You are proposing not saving at all, and that will end up putting a person in touch with a rough reality when they have to retire.

    The issue of income inequality is huge, but really separate from the choices of saving and investing for retirement at any given income level. Sometimes 401K plans can work out for a person if they are getting a company match, the fees are low, and if the person has a basic low fee choice of stock index and bond funds in the 401K. Or you can save outside of a 401K or IRA. The point I was making is that people are going to be more secure if they make spending choices that allow them to save, and also of course we have to fight to get a more equally distributed economy.

  • Susan

    I was confused by these numbers, too

  • Robert Monsen

    There is an error in the article, that claims that the 90% level savers have 100 times the median of $44,000, which is $4.4 million. It then goes on to claim that the 99% level have $1.3 million. Please fix the article. I suspect the 100 should be a 10.

  • Rebecca Ore

    I live in Nicaragua as a pensionada. Spend some time looking around. Just as many real estate sharks here as there. Don’t buy in a gated community that hasn’t been built yet, not anywhere.

    Most countries from Mexico south require monthly incomes of anywhere from $1000 for one/$1200 for a couple on average for residency. In Costa Rica, this puts you at lower middle class range by Costa Rican standards, probably the same for the nicer cities in Mexico.

    Visit first. If you’ve got five years before retirement, take vacations to different possible retirement locations.

  • moderator

    Because this article was originally from Alternet we have no control over the corrections.

    Sean @ Moyers

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  • Anna Mouse

    Wait what?! So the Boomers want the latchkey generation to take care of them? Time for Gen X and Y to grow a backbone – enough of this “I want it now, gimmie” Boomer generation.

    As for productivity falling – younger generations use technology to automate mundane tasks. Boomers treat technology with a wary eye and are reluctant to learn new things.

    The next couple of years will be rough but things were rough for the “The Greatest Generation” as well and I think we can all agree – they turned out OK.

  • Anonymous

    It’ll be close for you. Good luck!

  • Anonymous

    A pension gives you security in retirement. That’s all, but it’s a lot more than Emerson has now.

  • Anna Mouse

    I went to mutual bond funds about 4 months before the crash. The worst part was reading through all the prospectus reports to make sure the funds weren’t invested in CMOs or CDOs.

    Anyone interested in exactly how Wall Street robbed main street blind and got away with it, should read “Traders, Guns, & Money” by Satyajit Das. The book is easy to read and Mr. Das is literally the guy who wrote the complex derivatives manuals Wall Street banks use on a regular basis. Ironic, as he seems to be no fan of Wall Street.

  • South Florida CFP

    Those that left their money alone during the market correction did get their money back – and then some. Thank you 401k!!

  • Mike Ballard

    As wage-slaves, we are forced to live under a system where the lion’s share of the wealth we produce ends up in the hands of the capitalist and landlord classes. In today’s world, 71% of the wealth 90% of the people produce ends up being controlled and owned by 10% of the people. Still, it’s not enough for the 10% who avidly support the wage system. They want more and if that means being taxed less to support Social Security in the USA and sicking their running dogs in the conservative intellectual community on Medicare while, proposing the casino games of the stock and bond markets as appropriate places to plan for workers’ retirement, they will. In fact, they HAVE. Australian workers who think their Super will provide a safe harbour during retirement, think again. Learn from history and never trust the capitalist class with even a smidgen of the wealth you produce. Instead, demand that the wealth you create in exchange for wages be used to provide you with a decent government pension, one with which you will be able to afford a home, food, healthcare and security in old age. Granted, most of that wealth will have to come from taxing the capitalists and landlords who now hog most of it.

  • Eli Cabelly

    I have been lucky enough to have a few jobs with generous 401k matching and I have taken advantage of them. Those accounts are now my fallback when I am on hard times. They won’t last until retirement, that is certain.

  • smooth edward

    People like Dissenter don’t read. They just repeat talking points picked up elsewhere that support their already held views.

  • Eli Cabelly

    Now imagine that you make the median household income of 50k per year and you have 2 young children and a newly disabled parent, along with some student loans. You now have expenses of 3k per month that aren’t related to living expenses, things like childcare and medical bills.

    How do you expect to live?

  • Anonymous

    That is pretty much the situation I am in, less a child or two. No Mr. Cabelly, I expect us to die!!!!!!!

  • Kenneth Thomas

    The typical personal finance recommendation has long been that you can take 4% of your savings per year in retirement and not exhaust it. At that rate, $1 million in savings would give you $40,000 per year in income. But since the crash, 4% is looking to many as too high.

    This personal finance recommendation has an implication that few have noticed: a $1000 a month pension is equivalent to $300,000 in retirement savings ($300,000 x 4% is $12,000 per year), probably more. This underscores the importance of protecting pensions that do exist, such as state and local governments. The same is true of Social Security.

    I have written about the failure of 401(k) here:

  • Anonymous

    “The next couple of years will be rough but things were rough for the “The Greatest Generation” as well and I think we can all agree – they turned out OK.”

    Who do you think took care of the “Greatest Generation?”

    Very few people seem to be aware of how huge the G.I. bill was for WWII vets, even compared to Korea vets, and it was diminished further for V.N. vets. They started life in a depression, we have one to deal with in old age, and got here on 35 years of waste and decline with hardly a year when we didn’t increase our productivity over theirs. Overall, they had it better.

  • Anonymous

    401K accounts were meant to be a long term investment into retirement. Not as a bank account for every little thing that comes along. In addition to a 401K, you still need emergency money. You should not be dipping into a 401K for kids college. The misuse of an account doesn’t mean the account is the problem. It means the holders are not using the money for what it is intended…..retirement. If you were close to retirement, you shouldn’t have had the account in any kind of risky investments. If you have a way to go, then the crash of the market wouldn’t have mattered. Leave the money there and forget it. When the market bounced back, you would have gained everything back that you lost.

  • Anonymous

    We reached out to Lynn. Her reply:

    Here are 2 statements pulled directly from the EPI report:

    “Median savings—the savings of the typical household with a positive balance—are much lower ($44,000) and fell in the wake of the recent downturn.”

    “A household at the 90th percentile has nearly 100 times more retirement savings than the median household.”

    I think what is confusing this commenter is that the $44,000 median number refers to savers, but all households are not savers, making the median for ALL households much lower.

  • cgmcle

    Good article, and I don’t want to seem like a nit-picky critic, but there’s something in the way many people talk about important issues that implicitly betrays either a skewed world view, a naive perspective, or just an adoption of inaccurate language that tilts the way people see things. In writing about the failings of 401(k)s, the author writes: “A country full of impoverished elderly people is bad for everyone.” The other day I heard an otherwise intelligent person say something like “and no one believes that defunding Obamacare is a good idea.”

    There are legions of people in the U.S. who truly believe that defunding Obamacare is the only way to save America. It may be true that a country full of impoverished elderly is bad for the bottom 90%, or maybe 80%, but the wealthy will be not only unharmed, but also unconcerned about the suffering of “the little people.”

    We need to explicitly acknowledge in our discussions of such critical issues that there is a distinct minority in this country, probably a large minority, who don’t care about other people, who have no compassion for others.

    There is a much smaller minority who leverage their impact on society and the economy with their great power. To a significant degree, big corporations appear to be run largely by sociopaths — people completely devoid of empathy and unable to form meaningful relationships with other people. Consequently, they are highly deceitful, manipulative, and will do anything they can get away with to get what they want. (And look at what they’re getting away with!) It’s estimated that 1-4% of the U.S. population is sociopathic, and it certainly appears that sociopaths are disproportionately present among corporate boards and executives. I finally saw the word “sociopath” in a major blog (thanks, Paul Krugman) and hope that we can start using the “s” word more often in our discussions so we can more effectively understand and address the reasons for the exploding inequality in the U.S.

  • Anonymous

    Part of the problem is the 401(k) plans, originally, were meant to be an extra benefit in addition to a pension. Over time, however, 401(k)’s have become a substitute for pensions.

  • Jim

    Here is some more information on why many defined benefit pensions have been eliminated. One reason given for eliminating or scaling back defined benefit pensions for government workers is that people with private sector jobs have already had their defined benefit pensions turned into 401K plans because defined benefit pensions are too expensive.

    However, defined benefit pensions
    were not phased out for private sector workers because they were too
    expensive; they were phased out because rich people figured out a new
    way to steal money using leveraged buyouts. Here is how it
    worked. In the 1980s it became apparent that many corporations
    had assets that were worth more than the value of 51% of the stock.
    If one bought 51% of the stock then one would control the company &
    100% of its assets, which were worth more than the cost to buy 51% of
    the stock. In order to buy 51% of the stock, one didn’t
    actually need to have all the money required to buy the stock.
    Selling junk bonds was the usual way money was acquired for buyouts.
    Many companies were bought up this way.

    Once the buyout was done, the process of looting company assets would begin. This would include laying off workers, eliminating research departments,
    selling off buildings & equipment & leasing it back, &
    pocketing corporate cash reserves. The people doing the buyout
    would take over the top management positions in the company &
    have the company borrow large amounts of money. They would pay
    themselves inflated salaries using the liquidated assets &
    borrowed money. Profits could be further increased by lowering
    the quality of the company’s products. Formerly well run
    companies building quality products were turned into empty shells
    with no assets, building poor quality junk. Many such taken
    over companies would eventually go bankrupt, but the takeover artists
    would be left with huge profits.

    How did this affect defined benefit pensions?

    Defined benefit pensions for the private sector are governed by rules for funding. Actuarial mathematicians have methods for taking into account the number of
    people covered by a pension, the ages of those people, the benefits
    promised, mortality tables, & average rates of return
    expected for conservative investments. Taking these things into
    account, they come up with the amount of money that needs to be set
    aside each year for the pension fund & a minimum amount of money
    that needs to be in the fund in any given year. In theory, if a
    company went bankrupt, there would be enough money in the pension
    fund to give people of less than retirement age a reasonable cash
    settlement & pay the monthly pension benefits of those already
    retired or old enough to start retirement. In theory the fund
    would not run out of money until the the last pensioner died. The
    rules for company pension funds require the calculation of a minimum
    required amount of money that should be in the fund every year. If
    the fund is short of this minimum amount, the company has several
    years to bring the fund back up to the minimum required amount. If
    the fund has more than the minimum required amount, the company does
    not need to make any contribution for the year. However, if the fund
    has more than the minimum required, management cannot take the excess
    money out of the pension fund.

    Stock prices can go up because a business is successful. Stock prices can also go up because large amounts of stock are being bought in a short time. In the 1980s
    leveraged buyouts required that 51% of a company’s stock be bought up
    in a short time. There were lots of leveraged buyouts. This
    artificially pushed up the value of stocks quite rapidly in the 80s.
    Pension funds contained stocks which appreciated rapidly due to
    leveraged buyouts. Therefore most pension funds ended up with
    substantially more than the minimum legally required value, &
    management did not need to make any contributions to the pension
    funds. So defined benefit pensions did not become too expensive for
    management to contribute to. No contributions were required because
    of the rapid rise in the stock market.

    However, the purpose of leveraged buyouts was to steal money. How could the takeover artists steal the pension fund? The answer was to terminate the fund. When terminating the the pension fund, all pension fund money in excess of
    the minimum legally required amount could be put into the pockets of
    management. The minimum legally required amount for the fund would
    be used to continue paying pensions of those already retired &
    give a cash settlement to workers not yet retired. This is why
    private sector defined benefit pensions went away; to steal excess
    money in the pension funds that was there due to an artificial run up
    in stock prices caused by leveraged buyouts.

    Funding pensions is a similar actuarial problem to funding life insurance. For both life insurance & pensions one takes into account the benefit promised, the ages of
    people covered, mortality tables, & the expected return on conservative investments. However, not very many life insurance companies are going bankrupt, but lots of pension funds are in trouble. Why is this so when the mathematics of life insurance & pensions is quite similar? The answer is that if a life insurance
    company doesn’t do the math right & runs short of money, the
    company is liquidated & management is fired, so management has an
    incentive to do the math right.

  • Ben

    Interesting the author didn’t make mention of 2 points… Defined benefit plans are too expensive… Hence why social security is underfunded… In essence where is the money to pay it? Next point with regards to the 401 k, it was created to tax the wealthier wage earners… Contribution limits prevented high wage earners from sheltering massive amounts of their income in defined benefit plans allowing the Feds to tax more of their earnings… Going back in history she would find that when deficits became an issue this was one solution… Just like when Clinton had a surplus he relaxed rules in this area causing an increase in defined benefit plans… It’s very simple… Finally, I guess personal responsibility is gone… She mentions safety nets and how beloved these items are… Why? Cause then no one has to be responsible in the future… In essence let me take away choice, cause you can’t be trusted to make the right decision! Too bad!

  • Anonymous

    In the book The Great Wall Street Retirement Scam the author lays out why Wall Street 401k plans and IRAs don’t work. If you have one of these read it and save yourself.

  • TStockmann

    I think there’s a typo in the retirement savings comparison paragraph: if members in the 90th percentile had 100X the median of $44K, they’d have $4.4 million, or 3 times the figure quoted for the top 1%, $1.3 million. It’s probably 10x

  • Ted, CFP

    Jim you must be a stockbroker, for the only thing that you are looking at is the increase in the market. You don’t take into account all the individual that had job loses due to closing of businesses, individual that retired and/or had withdrawn from the market. These individual did not participate in the recovery of the stock market.

  • Peter Georgevic

    Or possibly lived within your means prior to losing your job?

  • Peter Georgevic

    If it’s not recovered it was not invested very well, or you got out of the market on the way down. Everythings not class warfare, or blaming others for your own problems.

  • Russell Spears

    Seems to me that high frequency trading is cutting into any returns our 401K could see? These Elite servers (no doubt host A.I.s far advanced of ones like WATSON by IBM feeding the top .001%). My point is this: these few interests are no doubt sucking out all the Low Risk and High Return investments out of the market and given 70% to 80% of the market trading is now done by these computers what is left for the Money Managers who on top of sucking down 2/3 of the returns you were forced gamble your life savings on.

    When these Money Managers happen to look at these accounts, are they not left with that 20% of the market’s High Risk Low Return? anyone have some input on this?